criticism / Dilok Klaisataporn

This article appears in the February 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

To encourage useful input from retail investors — a group highly affected by regulatory policy but lightly represented in public consultations — the Canadian Securities Administrators (CSA) is proposing its own investor advisory panel (IAP) modelled on Ontario’s.

The CSA stated its new panel would be up and running by the spring, and be composed of five to nine members nominated by chairs of the various provincial regulators. At least one member would be from the Ontario Securities Commission’s (OSC) existing IAP.

However, the CSA’s consultation revealed concerns about the role a new CSA-level IAP will play in policy development. Both the investment industry and investor advocates worry that a new investor panel at the CSA level may prove redundant and unproductive.

The submission from the Federation of Mutual Fund Dealers (FMFD), an industry trade group, suggested underwriting investor panels at both the CSA level and the provincial level would unnecessarily duplicate efforts: “There should only be one level of IAP, and if this panel is to service the full CSA, all provincial IAPs should disband in favour of this integrated approach.”

In addition, if the CSA goes ahead with its own IAP, the FMFD said, it should cast its net more widely than the roster of activists that typically speak on behalf of investors: “Should this panel be formed, we hope to see a fresh, growing and broad pool of experienced investors with regulatory exposure involved in the panel (e.g., senior advocacy associations, pension plans, family offices, individual investors), rather than this being an additional forum for the traditional advocate voices that are omnipresent in regulatory input.”

While the FMFD’s submission acknowledged the value of enhancing investor input, the federation’s primary concern was the growing cost of regulation.

Investor advocates also expressed concern that a new IAP may not enhance policy-making, although their chief concern was that regulators are defining the proposed panel’s mandate too narrowly.

The submission from the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) recommended the proposed IAP’s duties extend beyond commenting on regulatory rule proposals and include providing regulators with advice on longer-range plans.

“Given their importance in shaping the regulatory and policy agenda, commenting and advising on these plans should be specifically noted in the panel’s mandate,” FAIR Canada stated.

The Canadian Advocacy Council of CFA Societies also argued the CSA’s IAP should do more than provide feedback on existing proposals and help shape the regulator’s agenda through policy projects or original research that could highlight lurking investor issues.

The OSC’s IAP has done this sort of work in recent years. Among other things, the panel has commissioned research into risk profiling and reviewed regulators’ mandates from around the world (amid a proposed expansion of the OSC’s mandate). Last year, the OSC’s IAP published its Horizon Project report, which detailed emerging issues that may impact investors, such as the entry of major tech firms into the financial business and a looming shortage of financial advisors in Canada.

Alongside this broader research, the OSC’s IAP has moved beyond simply commenting on OSC proposals to also making submissions on provincial government initiatives, self-regulatory organization rule proposals, and the work of other regulators.

Yet, as far as investor advocates are concerned, the investor protection environment is far from ideal.

“In spite of multiple well-reasoned comment letters penned by the OSC IAP, trailing commissions have not been banned, a best interest standard has not been adopted, [the Ombudsman for Banking Services and Investments] has not been granted binding authority, the titling of advisers has not been reformed, the complaint handling process has not been simplified and an investor restitution fund has not been established,” stated Harvey Naglie, a former member of the OSC’s IAP, in a submission to the CSA.

While these failings can’t be blamed on the IAP, Naglie’s submission suggested the CSA should be more “ambitious and creative” in its vision for a new investor advisory body. Echoing industry concerns, he questioned the value of mimicking the OSC’s investor panel at the CSA level.

“Personally, I would like to see the CSA set its sights higher,” Naglie wrote, recommending that the CSA’s investor-input mechanism be triggered earlier.

“By the time that the OSC IAP has the opportunity to comment on a rule or input on a policy initiative, other key stakeholders have already participated in the discourse and influenced the outcome,” Naglie wrote. “I often compare regulatory policy-making to working with cement — to have a meaningful impact, you need to be there when the cement is being mixed and not when it is already being poured and starting to set.”

To that end, Naglie recommended the CSA create an investor body “designed to collaborate with CSA regulators at the formative and development stages of new rules and policies.”